Minneapolis Portfolio Management Group | info@mpmgllc.com | 612.334.2000
speaker series mpmg featured image

2011 Speaker Series: Neil Cavuto

Neil Cavuto

As senior vice president, anchor and managing editor, Neil Cavuto oversees all business news content for both Fox News Channel and Fox Business Network. He not only anchors programs on both networks, they are among the highest rated news shows on all of television. His Your World market-closing broadcast on FNC is the most watched financial news program in America, and has been for the past ten years.

At its hour, Your World beats CNBC, CNN, and MSNBC combined. His weekend wrap-up Cavuto on Business, is the second highest rated. Cavuto also oversees Bulls & Bears, Forbes on Fox, and Cashin’ In. Collectively they complete the top five financial programs on television.

cavuto grodnick

PART I: MPMG – A perspective on the markets

A volatile first half of 2011

  • Events around the world create challenges that would have been much less visible from a global perspective a generation ago. Information moves much more fluidly across the globe today.
  • The economy remains resilient in the face of significant events such as Japan’s earthquake and tsunami, the Arab Spring, European debt issues and the threat of a U.S. government default.
  • The mood of the country about the economy is fairly negative. But we have seen this before – most famously as the difficult decade of the 1970s was winding down and Business Week magazine’s cover proclaimed “The Death of Equities.”
  • This month, a cover of The Economist read “Time for a double dip?“ It raises the question of whether conventional wisdom could be defied again.

What you don’t hear about

  • Earnings of companies that comprise the S&P 500 are projected to reach an all-time high of $95/share in 2011. This is up from $51/share in 2009. By 2013, earnings are projected to reach $125/share. (See chart – Even With Slow Growth, Corporations are Making Money.)
  • As companies continue to generate profits for shareholders and strengthen their balance sheets, the price of shares should increase over time.

even with slow growth corporations are making money

  • Buying of company shares by corporate insiders has grown dramatically in recent weeks.
  • On the Monday following the announcement that Standard & Poor’s downgraded the U.S. government’s debt rating, a record 47 executives made purchases on their personal accounts.
  • Warren Buffet bought more stock on that day than at any other time in recent years.

How investors can position themselves in uncertain times

  • It is important to have an investment discipline with a proven track record of creating wealth.
  • Clients can benefit from owning businesses that provide solutions to challenges.
  • While volatility can be expected in the short term, investors need to demonstrate patience to benefit from the opportunities being created in today’s market.

Key investment themes creating opportunities

  • The population of the world will continue to explode – from 6 billion today to 10 billion by 2050. (See chart “The Population Explosion Continues”)

the population explosion continues

  • In 2009, nearly two-thirds of middle class consumption was generated by residents of North America and Europe. By 2030, middle class consumption worldwide will more than double, but only 30% will originate from North America and Europe. (See charts – As Middle Class Consumer Demand Rises…The Source of Spending Will Shift.)

as middle class consumer demand rises

consumer spending by region

  • Investing in businesses that sell products and services to these growing parts of the world is a major theme in the MPMG portfolio.
  • These demographic changes lead to another one of our major investment themes – increasing energy demand. Prospects for oil at $150/barrel (close to double today’s level) seem likely.
  • MPMG holds investments in oil companies tied to the Canadian oil sands development.
  • With population growing significantly, food is in demand. Prices have risen dramatically in recent years. Companies with agricultural interests are another long-term opportunity. (See chart – Demand for Food is Sending Prices Higher)
  • Growth in the electronics industry is also dramatic. There are 900 million mobile phone users in China alone and worldwide, just under 2 billion people are on the Internet. Investment in Internet infrastructure is growing dramatically.

Demand for Food is Sending Prices Higher W eighted Indices of Food Prices W orldwide In Constant Dollars (2000 = $100)

PART II: Neil Cavuto – Not Quite The End of the World

Being Realistic About Where Things Stand

Observations from Neil Cavuto

  • There are concerns and glimmers of good news, but generally the media tends to make too much of specific events, which seems to lead to overreaction by markets and investors.
  • We are seeing more and more examples of terminology being used that tends to enhance the truth, rather than clarify matters for the average investor. The truth is that real numbers and real meaning matter.
  • For example, politicians tend to use euphemistic phrases, such as “revenue enhancements“ rather than “tax increases.”
  • We have discovered that actual earnings, not the promise of earnings like we saw during the Internet boom of the late 1990s, are important in order to support stock values.
  • Numbers talked about in the headlines can be deceiving. Government debt needs to be realistically assessed. The $2 trillion in cuts that are promised in the most recent debt deal hide the reality that the federal government’s debt will still increase by $7 trillion by 2020 using current projections.

Potential investment implications from MPMG

  • The markets are likely to remain volatile, with short-term events causing dramatic up-and- down swings.
  • Individual investors must look past the hype and the “back-and-forth” bickering heard in the media to avoid making foolish decisions that could cost them in the long run.
  • A selective investment strategy may be the most effective approach given the current uncertainty about the direction of the economy.

A scrambled political environment

Observations from Neil Cavuto

  • The media will get a lot wrong in their cover- age of the campaign. For example, the concerns raised that either Gov. Rick Perry or Rep. Michelle Bachmann will drive the Republican party too far to the right echo what turned out to be a misreading about the nomination of Ronald Reagan by Republicans in 1980.
  • However, President Obama will be difficult to beat. But it is too early to pass judgment on what to expect.
  • Policymakers are doing a poor job of dealing with the nation’s debt problem. Deficits were manageable until a couple of years ago. Since then they have ballooned to unsustainable levels.
  • Both Democrats and Republicans deserve blame for failing to address the issue clearly. Fortunately, low interest rates have helped moderate the government’s cost of issuing debt.

Potential investment implications from MPMG

  • Expect the political environment to add to the short-term uncertainty of investors and volatility in the market.
  • While political developments tend to grab the headlines, they generally have little impact on what is happening in the markets, particularly over the long run.
  • Investors need to be careful not to let political concerns overtake fundamental investment factors when making decisions about their port- folios.

Overcoming the challenges that lie ahead

Observations from Neil Cavuto

  • Much has been made about how China is going to usurp the U.S. as the world’s top economic power. It may take longer than many think as there is reason to be skeptical of information China releases about its economy. We shouldn’t be on the defensive with China. They need us to buy their goods just as we need them to buy our debt.
  • Many question whether our country has the fortitude to respond to today’s challenges and those yet to come the way the “Greatest Generation“ did in World War II. We saw the answer to that question in the rescuers who rushed into the World Trade Center on 9/11 and sacrificed their lives.
  • We have it in our DNA to recognize the problems facing us and the challenges ahead. What’s more, we owe it to our ancestors, who went through far worse with the Great Depression and subsequent war to respond to these challenges.
  • You are never too old to see the possibilities of the future and get excited about them. Great potential remains.

Potential investment implications from MPMG

  • Great investment opportunities often come by identifying companies that can see challenges or problems of society and develop solutions for them.
  • As it did over the 20th century, the future continues to offer tremendous potential to build wealth by investing in companies that can capitalize on evolving opportunities.
  • Investors need to look past the clouds that are on the immediate horizon and see the prospects for better days ahead as we slowly work our way through an economic transition period.
  • The world‘s continued growth and the rise of a new middle class in emerging economies will help fuel the next stage of demand and economic growth.

 

Although the information in this document has been carefully prepared and is believed to be accurate as of the date of publication, it has not been independently verified as to its accuracy or completeness. Information and data included in this document are subject to change based on market and other condition. All prices mentioned above are as of the close of business on the last day of the quarter unless otherwise noted. Market returns discussed in this letter are total returns (including reinvestment of dividends) unless otherwise noted.

The information in this document should not be considered a recommendation to purchase any particular security. There is no assurance that any of the securities noted will be in, or remain in, an account portfolio at the time you receive this document. It should not be assumed that any of the holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable. The past performance of investments made by MPMG does not guarantee the success of MPMG’s future investments. As with any investment, there can be no assurance that MPMG‘s investment objective will be achieved or that an investor will not lose a portion or all of its investment.